Your Income Tax should be LOWER this 2023.

DISCLAIMER: Computations presented below are for reference only and most likely will not accurately reflect your payslips. Contact your payroll or accounting department if you have queries on your salaries and taxes.

INTRODUCTION. I bet a lot of peeple do not know this, but if you're an individual taxpayer, whether a Filipino citizen or an alien individual, as long as your source of income is derived within the Philippines, your taxable income should be lower starting 1 January 2023.

As provided by the Republic Act No. 10963 or the "Tax Reform for Acceleration and Inclusion" Act (or TRAIN law) signed by former Philippine president Rodrigo Duterte in 2017, it is stated that a new tax schedule shall be implemented starting fiscal year 2023.

Let's define "taxable income" first.

Taxable income is the amount we get after all necessary deductions (before taxes) every payout. Mandatory deductions are inclusive of the contributions to Social Security System (SSS), Home Development Mutual Fund (HDMF or Pag-IBIG Fund) and Philippine Health Insurance Corporation (PHIC or PhilHealth). Lates and absences are not taxable for they are already deducted from your income. Also, you may have allowances and other items of compensation that are non-taxable by default, so consider those factors when you try to compute for your own.

GONE WITH THE OLD, HERE COMES THE NEW. To recap the tax rate we have as of writing (2022), essentially, those who take home no more than ₱250,000 a year (including the minimum wage earners) are tax-exempt, while the rest of the working force shall expect a portion of their compensation to be withheld by their employer to pay income taxes on their behalf, hence the term "withholding tax."

Below is the table of tax rates for fiscal years 2018 to 2022. Please bear in mind that all the amount in the table pertains to annual income.

TAX SCHEDULE EFFECTIVE 1 JANUARY 2018 UNTIL 31 DECEMBER 2022
Annual income of ₱250,000 and below	0% (Tax exempt)
Over ₱250,000 but not over ₱400,000	20% of the excess over ₱250,000
Over ₱400,000 but not over ₱800,000	Base tax of ₱30,000 plus 25% of the excess over ₱400,000
Over ₱800,000 but not over ₱2,000,000	Base tax of ₱130,000 plus 30% of the excess over ₱800,000
Over ₱2,000,000 but not over ₱8,000,000	Base tax of ₱490,000 plus 32% of the excess over ₱2,000,000
Over ₱ 8,000,000	Base tax of ₱2,410,000 plus 35% of the excess over ₱8,000,000

Barring an amendment (I don't think there's much time for the lawmakers to amend the TRAIN law at this point), RA 10963 mandates the government to implement the following new tax rates beginning fiscal year 2023. I am going to highlight the expected changes in yellow. Let me reiterate that all amounts in the table is annual income.

TAX SCHEDULE EFFECTIVE 1 JANUARY 2023 ONWARDS
Annual income of ₱250,000 and below	0% (Tax exempt)
Over ₱250,000 but not over ₱400,000	15% of the excess over ₱250,000
Over ₱400,000 but not over ₱800,000	Base tax of ₱22,500 plus 20% of the excess over ₱400,000
Over ₱800,000 but not over ₱2,000,000	Base tax of ₱102,500 plus 25% of the excess over ₱800,000
Over ₱2,000,000 but not over ₱8,000,000	Base tax of ₱402,500 plus 30% of the excess over ₱2,000,000
Over ₱8,000,000	Base tax of ₱2,202,500 plus 35% of the excess over ₱8,000,000

In summary, those who were paying income tax since the TRAIN law will enjoy lower base taxes and lower tax rates depending on which tax bracket their annual income falls into. That's with the exception of those who are fortunate to earn more than eight million pesos a year, they only have lower base tax, but with the same tax rate of the excess of over eight million.

To better understand the effects of these changes, I'll provide below the tax tables coming from the Bureau of Internal Revenue (BIR) that show the daily, weekly, semi-monthly and monthly tax brackets. Feel free to click and zoom because the font size is small.

Withholding Tax Table for Fiscal Years 2018 to 2022 (Source: BIR)

NEW Withholding Tax Table beginning Fiscal Year 2023 (Source: BIR)

Simply put, those who take home ₱20,833 a month are exempt from paying income taxes.

EXAMPLES. To compare, let's have a tax computation of a certain guy who earns ₱25,000 a month in 2022 and in 2023. How much can he save from this impending tax adjustments?

Again, not all of his monthly twenty-five thousand salary is taxable. Suppose he did not incur any absences or lates, so we'll just deduct the mandatory contributions from his gross monthly salary.

PERIOD:	FY 2022	FY 2023	NOTES
GROSS MONTHLY SALARY (A):	₱25,000.00	₱25,000.00
MANDATORY DEDUCTIONS:
SSS	(1,125.00)	(1,125.00)	[1]
HDMF (Pag-IBIG)	(100.00)	(100.00)	[2]
PHIC (PhilHealth)	(500.00)	(562.50)	[3]
OTHER DEDUCTIONS:
LOANS	0.00	0.00
LATES/ABSENCES	0.00	0.00
TOTAL DEDUCTIONS (B):	(1,725.00)	(1,787.50)
TAXABLE INCOME (A – B):	₱23,275.00	₱23,212.50	[4]

Notes:
[1] SSS contributions are not bound to increase for employees until 2024; the cost of the increase will be borne by the employer (employer's share) in 2023 and in another time come 2025. Source: P&A Grant Thornton
[2] Contributions to HDMF are pegged at ₱100 for all employees whose monthly salary are above ₱5,000.00. Source: Tax Calculator Philippines
[3] PhilHealth dues are expected to increase in 2023 (at 4.5% total: 2.25% employer share and 2.25% employee share) and in 2024 (at 5% total, 2.5% each share). It is not expected to go beyond 5% as mandated by its charter. Source: FilipiKnow
[4] This is NOT the tax yet. Another table coming up below.

Now we have determined the amount subject to tax, the next computation will show you how much income tax is due.

By looking at the BIR Withholding Tax Table, his taxable income falls within the tax bracket of ₱20,833 - ₱33,332 or the second tax bracket. Remember, only after you've determined the taxable income can you consult the Withholding Tax Table.

PERIOD:	FY 2022	FY 2023	NOTES
TAXABLE INCOME (C):	₱23,275.00	₱23,212.50
TAX RATE (D): (Refer to images above)	20% of amount over 20,833	15% of amount over 20,833	[5]
AMOUNT EXCEEDING TAX BRACKET'S LOWER LIMIT (E):	2,442.00	2,379.50	[6]
RESULT OF THE TAX RATE (E * D):	488.40	356.93	[7]
ADD BASE TAX (F):	₱0.00	₱0.00	[5]
TAX DUE (E * D + F):	₱488.40	₱356.93	[8]
NET MONTHLY INCOME:	₱22,786.60	₱22,855.57	[9]

Notes:
[5] Refer to the Withholding Tax Tables from BIR (screenshots provided above) to determine the tax rate and the base tax. The tax rate is applied to the lower limit of each tax bracket. To recall, our example falls within the second tax bracket, which has 20,833 as its lower limit and has no base tax (0.00).
[6] Computed by subtracting the tax bracket's lower limit from the taxable income.
[7] Excess amount (E) multiplied by the tax rate (D). (Math review: 20% is 0.2, 15% is 0.15.)
[8] This is the monthly income tax.
[9] Taxable income minus tax due. The answer will be the "take home pay."

As a result of the 2023 tax adjustments, he can have additional almost seventy pesos every month in his pocket. Of course, the higher the compensation, the bigger the amount one can save. To quench one's curiosity about the tax being foregone for higher compensated peeple, let's now have a woman employee this time who earns a million pesos annually as gross income, how much is her tax difference between 2022 and 2023?

Since the given amount is annual wage, we should compute for its monthly equivalent.

₱1,000,000.00 divided by twelve months is ₱83,333.33.

PERIOD:	FY 2022	FY 2023	NOTES
GROSS MONTHLY SALARY (A):	₱83,333.33	₱83,333.33
MANDATORY DEDUCTIONS:
SSS	(1,125.00)	(1,125.00)	[1]
HDMF (Pag-IBIG)	(100.00)	(100.00)	[2]
PHIC (PhilHealth)	(1,800.00)	(1,800.00)	[3]
OTHER DEDUCTIONS:
LOANS	0.00	0.00
LATES/ABSENCES	0.00	0.00
TOTAL DEDUCTIONS (B):	(3,025.00)	(3,025.00)
TAXABLE INCOME (A – B):	₱80,308.33	₱80,308.33	[4]

Notes:
[1] That amount is the highest SSS can have from an individual employee.
[2] Same rules apply, for those whose monthly basic salary exceed ₱5,000.00, your contribution is pegged at ₱100.
[3] Those earning more than ₱25,000.00 a month can contribute ₱3,600.00 to PHIC (50-50 employer-employee share).
[4] This is NOT the tax yet. Another table coming up below.

Looks like the mandatory contributions did a little dent on her salary, let's see when the tax computation comes in.

PERIOD:	FY 2022	FY 2023	NOTES
TAXABLE INCOME (C):	₱80,308.33	₱80,308.33
TAX RATE (D): (Refer to the tables above)	30% of amount over 66,667	25% of amount over 66,667	[5]
AMOUNT EXCEEDING TAX BRACKET'S LOWER LIMIT (E):	13,641.33	13,641.33	[6]
RESULT OF THE TAX RATE (E * D):	4,092.40	3,410.33	[7]
ADD BASE TAX (F):	₱10,833.33	₱8,541.80	[5]
TAX DUE (E * D + F):	₱14,925.73	₱11,952.13	[8]
NET MONTHLY INCOME:	₱65,382.60	₱68,356.20	[9]

Notes:
[5] Our example this time falls within the fourth tax bracket, which has 66,667 as its lower limit and has a base tax of ₱10,833.33 and ₱8,541.80 for 2022 and 2023, respectively.
[6] Computed by subtracting the tax bracket's lower limit from the taxable income.
[7] Excess amount (E) multiplied by the tax rate (D). (Math review: 30% is 0.3, 25% is 0.25.)
[8] This is the monthly income tax.
[9] Taxable income minus tax due. The answer will be the "take home pay."

The computation reveals that while the tax is still hefty even after the expected adjustments, she can have a little under three thousand pesos of extra cash every month starting 2023.

ADDITIONAL NOTES. The available tax calculators on the internet, as of posting, are not yet equipped to compute for 2023 tax schedule. Nevertheless, I am leaving these links below to help everyone out:

• Withholding Tax Calculator - Bureau of Internal Revenue
  
• DOF Tax Calculator
  
• Tax Calculator Philippines 2022
  

For those self-employed individuals, I don't think this change will affect them, because their tax rate is fixed until such time an amendment to this law is passed. However, the mixed income peeple may or may not feel its effects, because it is highly dependent on their decision if they elect to give out 8% of the excess of annual income between ₱250,000 and ₱3,000,000 as tax or to subscribe to the graduated personal income tax rates which are all discussed above. If the mixed income earner garners more than ₱3,000,000 a year from their combined sources of income, they are required to abide by the rules of graduated personal income tax rates.